California Collects Less in Cannabis Taxes Than Expected

In its early stages, the recreational cannabis market is not delivering the tax revenues many had predicted.

Legal adult-use sales started on Jan. 1 and officials expected approximately $175 million to be collected in taxes by the end of June. It appears the actual revenues collected will fall considerably short of expectations.

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This week, the California Legislative Analysis Office released the official numbers and revealed that only $34 million in cannabis taxes were generated between January and the end of March.

“The excise tax revenue numbers announced today are abysmally below what Californians were promised when they voted to legalize recreational cannabis,” said Assemblyman Evan Low, a Democrat who heads the Business and Professions Committee, according to NBC affiliate KCRA. “The state must take all possible action to defeat the black market and support good actors, or else our newly established regulatory scheme will surely fail.”

As Low indicated, many consumers are turning to the black market instead of purchasing cannabis from legal dispensaries. Extremely high tax rates could be one of the biggest reasons consumers are purchasing from illegal sources. With taxes on cultivators, processors, and sales taxes from both state and local authorities, consumers can face upwards of 45 percent in additional fees when purchasing recreational cannabis.

In a state with a long history and culture of cannabis cultivation, consumers may not have a hard time finding alternative sources to buy from, allowing them to skip the steep taxes.

Some legislators are proposing a tax reduction on cannabis sales in order to entice consumers to purchase from legal dispensaries.

But tax rates are not the only factor contributing to lackluster sales. State authorities have been slow to issue licenses, and many shops have not yet begun recreational sales. Additionally, many local governments have banned dispensaries altogether.

State economist Seth Kerstein expects the tax revenues collected to increase over the coming months. With more shops coming online and a possible plan to allow deliveries from outside companies to areas where dispensaries are banned, Kerstein could be correct. However, he still feels that the overall taxes collected in California will fall short of initial predictions.